Soft commodities better bets than grains for 2018, says Commerzbank

Soft commodities represent a better bet for 2018 than grains, Commerzbank said, cutting its forecasts for corn and wheat prices below the futures curve, while lifting expectations for the likes of coffee and sugar.

The bank cautioned that “more plentiful” world supplies of wheat, and a “less tightening” corn balance sheet, will “make it hard” for prices of the grains to rise in 2018.

Indeed, for corn, Commerzbank cut by up to $0.40 a bushel its forecast for Chicago quarter-average prices next year, pegging values in the October-to-December period at $3.70 a bushel, below the $3.84 ¾ a bushel at which the December 2018 contract was trading at on Thursday.

The bank pushed out by a year to the July-to-September quarter of 2019 the timescale for which it forecast prices returning to $4 a bushel.

‘Plentiful supply situation’

For wheat, the bank cut its forecast for quarter-average prices next year by $0.40 a bushel across the board, seeing them end 2018 at about $4.60 a bushel.

The Chicago December 2018 contract was on Wednesday priced at $4.85 a bushel.

The forecasts for Paris wheat futures were cut too, by up to E10 a tonne, putting the October-to-December average at E170 a tonne, in line with the futures curve.

“The global supply situation as a whole is so plentiful that prices are likely to remain under pressure for the foreseeable future,” Commerzbank said.

“It is still too early to estimate the global balance in 2018-19, but there are no signs of any significant tightening.”

‘Significant price rise difficult’

For soybeans, the bank took a somewhat neutral rating, sticking with price forecasts which see values at $10.00 a bushel in a year’s time, a touch behind the level that November 2018 futures were priced at on Thursday.

“The supply of soybeans remains plentiful, in other words, so any significant price rise is likely to be difficult against this backdrop.

“In fact, prices are more likely to come under pressure again if the final data for South American planting give rise to the expectation of very high crops once again.”

The bank saw more prospect in oilseeds of gains in rapeseed values, trimming its forecast for Paris values in late 2018 but to E400 a tonne, above the E361.75 a tonne being priced into November 2018 futures.

“Rapeseed is likely to remain in short supply in 2017-18,” Commerzbank said, noting that for next year sowings in the EU, the top producer, were not seen expanding, and indeed had fallen in top grower Germany.

‘Optimism misplaced’

However, the most bullish calls were saved for soft commodities, such as cocoa, for which forecast for end-2018 prices in New York was lifted by $200 a tonne to $2,300 a tonne, comfortably above the $1,974 a tonne at which the December 2018 contract is currently valued.

“Lower supply coupled with robust demand is likely to give the cocoa price a boost,” the bank said, highlighting the potential for buoyant grind rates, at a time when recent price weakness has deterred growers from maximising output.

“We think that the high supply optimism which resulted in a price decrease by 10% in recent days might be disappointed.”

For raw sugar, the bank raised some of its quarter-average price forecasts by 0.5 cents a pound, although the estimate for late-2018 values was kept at 15.0 cents a pound, compared with a 14.59 cents-a-pound trading price for October 2018 futures.

“If the shift towards ethanol is maintained by Brazilian sugar mills, the proportion of sugar remaining low for any prolonged period, this is likely to shore up the price,” the bank said, while noting the small world output surplus pencilled in by some commentators for 2018-19, and forecast depreciation in the Brazilian real, as headwinds to gains.

‘Price surge’

For coffee, the bank raised its forecast for London robusta coffee prices in the October-to-December period of next year by $50 a tonne, to $1,900 a tonne, and for New York arabica coffee values by 15 cents a pound to 145 cents a pound for the same timescale.

Both were ahead of the futures curve, with November 2018 robusta coffee futures trading at $1,800 a tonne, and the December 2018 arabica contract at 133.10 cents a pound.

Commerzbank forecast that a record coffee crop in Brazil next year, as predicted by many commentators, “will probably not be achieved… given hot and dry conditions after the flowering phase” which kicked in around September.

Meanwhile, the effect of weak Brazilian exports in undermining stocks in importing countries will also support values.

In fact, “we believe that the risk is more on the upside – namely if weak export figures and unfavourable weather reports trigger a shift in sentiment”, the bank said.

Such a dynamic, “supported by reshuffling of positions on the part of short-term-oriented market participants, could cause a price surge”.

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